Pillars of strength
Turbulent times can also lead to changing investor behavior. For example, equities from companies that regularly pay dividends over long periods of time become attractive for investors. Such securities are very popular as a kind of interest replacement—for obvious reasons.
There are companies that are growing fast, make the headlines with spectacular innovations and—as soon as the market becomes slightly more turbulent—are brought back down to Earth with a bump. And then there are the others who simply do a good job. Dividend achievers are characterized by a stable business model and sustainable business development for decades. They pursue prudent risk management and follow the rules of good corporate governance. Typically, they also operate in defensive markets. Products such as electricity, water, medicines, yogurt, washing powder, or cosmetics are always in demand.
Frequently regular dividend payments
Companies who have sustainably paid dividends for multiple years are part of the group of the best performers—mind you, they also retain adequate reserves and capital to finance their business. The consistency and continuity of good corporate governance are reflected in the share prices: The share value is usually less volatile than other global indices and therefore more predictable. In addition, recent developments illustrate that dividend shares survive the turmoil of global financial crises better. Although their share prices also fell sharply in the crisis year 2008, the slump was still significantly less than share price falls on the S&P 500.
No playing field for speculation
Dividend strategies are inherently long-term strategies. They usually yield a high return, provided that the dividends are reinvested on an ongoing basis. However, it should be borne in mind that nothing is impossible. The global economy is in a transitional phase. Dividend achievers can only partially take on the role of being pillars of strength.
Risks of capital expenditures in financial markets
Capital expenditures in financial markets are associated with risks. The price, value, and return of securities depend, among other things, on the economic development and the creditworthiness of the issuers. Furthermore, historical yields and financial market scenarios are no guarantee for the future performance of an investment.
Five selection criteria for potential dividend achievers
- Companies with a long dividend continuity (over ten years without reducing the distribution)
- Dividend yield of at least 3 percent
- Companies where the dividend payment will not be jeopardized by a dent in earnings
- Companies with a positive earnings outlook
- Companies with strong balance sheets